The dollar is tumbling and the euro is soaring, but the most interesting development in the foreign-exchange market this week may be what’s happening with the Swiss franc.
The Swissie, as it’s known among traders, has inexplicably tumbled. The 2.09 percent decline the past three days against a basket of developed-market currencies as measured by Bloomberg Correlation-Weighted Indexes is the most in two years.
What’s more, it’s now the weakest against the euro since the Swiss National Bank abandoned its currency cap more than two years ago. Historically, the franc has been a haven in times of global turmoil. So, does the drop mean that traders have suddenly developed animal spirits when it comes to the global economic and geopolitical outlook?
That’s unlikely, say strategists, who are struggling to provide a reason for the weakness. The best explanation is that it’s more a reflection of euro strength and the more benign outlook for euro zone politics.
For the economy’s sake, Swiss officials would like a weaker franc, which has been in high demand since the financial crisis. Earlier this week, SNB President Thomas Jordan said in an interview with Le Temps that the franc is “significantly overvalued.” “
For this reason we maintain our monetary policy of negative interest rates and interventions if needed,” the newspaper cited him as saying.